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Why Microsoft wanted to buy Intuit

And why it threatened the company with a $1 billion in development cash for Money

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The uneasy relationship between Intuit and Microsoft can be traced back to at least early 1990 when Intuit discussed collaboration on a finance program for Windows with Microsoft. By late 1990, Microsoft told Intuit that it intended to compete, having induced Intuit not to develop a Windows program. Despite very strong competition and a price war with Microsoft, Intuit managed to hold and increase its market share. Microsoft offered Money at a price that was widely thought to be loss-making in its attempt to buy market share. It came out in court when Microsoft was being stopped from acquiring Intuit by the DoJ that then Microsoft VP Mike Maples had told Bill Gates that he "tried to be non threatening, but let him know we would do something aggressively". That behind the scenes something' consisted of threatening Intuit with a billion dollar Microsoft development programme for personal finance software if Intuit did not agree to be acquired. Intuit held out until October 1994 when it was agreed that Microsoft would purchase Intuit for $1.5 billion in Microsoft shares (or some 12 per cent of those outstanding). This would have been the highest-cost acquisition to date in the software industry (and would have risen to $2.3 billion because of the appreciation in Microsoft's share price). Microsoft was well aware that Intuit produced a new update of its software for each tax year, and that some 70 per cent of users bought the update. The potential for Microsoft to bundle Intuit products with Windows 95 updates, was clear. Mike Maples was forthcoming about the reason for the acquisition: "we were going to spend most of our energies dealing with existing competitors" unless Microsoft neutralised Intuit. Clearly Microsoft saw more value in Intuit than the immediate bottom line -- this was seen at the time to be control of the future of personal online banking. The personal finance/checkbook software market was (and is) strategically important to Microsoft. The banking community was also highly sensitive to the possible role that Microsoft might play, if not checked. One of the sensitivities about the Intuit acquisition for the industry was that Intuit was one of the few companies to have competed with Microsoft and win. The DoJ shared the concerns that had been expressed by Judge Sporkin, who was examining the consent decree, about the merger, and after an intensive investigation and the commencement of a legal action by the DoJ to prevent the merger, Microsoft withdrew and paid Intuit a termination fee of $46.25 million. Intuit still has around 65 to 80 per cent of the market with its products, and although Microsoft has spent a great deal developing and promoting its Money product, market forces have operated, with the first mover in the market maintaining its advantage. ® Complete Register trial coverage

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